The Hindu Business Line : ‘Allow banks in derivatives market’

New Delhi, April 6 The Planning Commission appointed High Level Group on Services has made a case for allowing banks to participate in the commodity derivatives market.

This is essential to bring depth and liquidity to the commodity derivatives market, the High Level Group said in its report submitted to the Prime Minister, Mr Manmohan Singh, here recently.

Currently, banks are not permitted to participate in both commodity derivatives and equity derivatives market.

The Panel has also suggested that the Government may consider allowing banks to participate in equity derivatives market as it would help them better manage risks in their equity portfolios and would also enhance market liquidity.

Meanwhile, the High Level Group, headed by the Planning Commission Member, Mr Anwarul Hoda, has also made a case for moving towards a single regulator for financial services, as opposed to the current multiplicity of regulators for different segments.

The Group has also recommended that the policy measures highlighted in the recent report of the High Powered Expert Committee (HPEC) on making Mumbai an international financial centre should be implemented.

It has “broadly endorsed” the findings of the HPEC.

In addition to the reform measures for various segments of the financial sector, the HPEC report had suggested policy reforms to facilitate capital account convertibility, macro economic stability and creation of well functioning bond, currency and derivatives markets to sustain financial sector reforms.

The Group has said that there was a need now for rapidly embracing innovation in order to meet the needs of various customer segments and achieving global competitiveness.

There was a need to consider a shift from a “rules-based” regulatory framework that is prescriptive and focused on controlling the financial sector, to a “principles-based” approach that encourages innovation and growth, within an overall framework of financial stability, the Group has said.

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